The Kenyan government is facing increasing scrutiny over its fiscal strategy as it struggles to strike a balance between expanding the tax base and incentivising investment.
Experts argue that while efforts to broaden tax collection have intensified, some of the initiatives risk eroding investor confidence and stifling economic growth—particularly in sectors that have historically relied on tax incentives to thrive.
Accounting and business advisory network PKF warns that at the heart of the controversy to withdraw incentives lies the growing burden of taxation on citizens and businesses which might scare investors.
Senior tax manager with PKF Kenya James Mulili argues that with the government targeting Sh2.8 trillion in tax revenues to support a Sh4.2 trillion national budget, attention has turned to the aggressive measures being deployed to meet these goals.
He points out that particularly contentious issue is the government’s plan to scale back tax expenditures—reliefs, exemptions, and preferential rates designed to attract investors.
“If you look at the last financial year, the amount of foregone tax revenue was almost Sh510 billion in the form of exemptions, incentives, capital allowances. But then here is the tricky bit. How does the government balance between reducing the tax expenditures and incentivising businesses to put in investments?” asked Mulili.
The experts pointed out that towns like Thika were widely recognized as industrial centers, largely because investments made outside of major cities like Nairobi, Kisumu, and Mombasa used to qualify for accelerated investment deductions.
This the advisory firm says had a positive impact on Kenya’s economy.
Mulili speaking during a pre-budget press conference however, added that proposed rollbacks, including limiting carry-forward tax losses to five years and reducing investment deductions, have alarmed the business community.
The analysist argues out that, Special Economic Zones (SEZs), once lauded for attracting foreign direct investment through lower corporate tax rates and deductions, also face potential policy reversals that could erode their appeal.
“This creates a paradox, the government is promoting SEZs and digital economy investment on one hand, but clawing back the incentives that made them attractive on the other,” added Mulili.
PKF East Africa's Chief Executive Officer Alpesh Vadher added that while Kenya’s investment outlook paints a promising picture, there is still a lingering fear over what the trade wars in United States will do to the local currency.
The advisory firm also pointed out that the housing sector, a pillar of the government’s affordable housing agenda, is also affected.
Developers building over 100 residential units annually previously enjoyed a reduced corporate tax rate of 15 per cent. Under proposed changes, these incentives may be scrapped—raising concerns about the viability of private sector participation in the programme.
Mulili further noted that complicating matters are persistent issues with tax refunds, particularly VAT, which have become a cash flow bottleneck for many businesses.
“At the same time, the Finance Bill 2025 proposes that the Kenya Revenue Authority (KRA) be granted access to sensitive business data, including trade secrets—a move that has triggered alarm among privacy advocates and investors alike,” he noted.
“The unpredictability of tax law changes in Kenya is a major deterrent to long-term investment. You can’t plan effectively when tax rules are overhauled mid-year, sometimes with retroactive effect.”
As Finance Bill 2025 heads to Parliament, the government is now facing a mounting pressure to rethink its approach.
PKF argues that the balancing act between revenue collection and fostering a conducive investment climate is proving more precarious than ever—placing the Treasury in a tight spot that could have lasting implications for Kenya’s economic trajectory.
